(AFP) Loss-making Malaysia Airline System (MAS) announced today it would scrap 12 international routes and increase flights in Asia as part of a programme to return to the black by 2004.

The national carrier, which has suffered losses since 1997, said the new network was part of a long-term plan to offset a slump in the global aviation industry following the Sept 11 terrorist attacks on the US.

"Malaysia Airlines estimates that the first phase of the network reconsideration will reduce MAS losses by up to RM190 million ringgit per annum," it said in a statement.

"Cost savings are expected to substantially offset any revenue losses incurred by the rationalisation of routes... overall, we still aim for breakeven in 2004 but may need to reassess this target as the global situation unfolds."

The airline embarked on a plan to return to the black after the government renationalised MAS in February. It has borrowings totalling more than RM10 billion.

Unprofitable routes

MAS is withdrawing unprofitable flights to Auckland, Beirut, Buenos Aires, Cairo, Cairns, Karachi, Istanbul, Manchester, Darwin, Rome, Zurich and Munich.

The airline is also slashing flights to Surabaya, Brisbane, Perth and Johannesburg. In addition, it is temporarily suspending services to New York pending developments there.

MAS said it would increase flight frequency to Denpasar, Phuket, Saigon, Tokyo, Shanghai, Guangzhou and Ziamen but almost 70 percent of its capacity would continue to serve long-haul routes.

"We are committed to improving our product and services and aim to mount additional frequencies to key markets such as London, Tokyo, China, Japan and selected Southeast Asian destinations," it said.

"Malaysia Airlines aims to improve services on key routes to provide at least daily frequencies subject to availability of traffic rights and slots."

MAS said it was in advanced negotiations with Dutch carrier KLM over a possible alliance to enable it to enhance its reach in Europe.

More changes to come

It said it also planned to make up for the withdrawal of services through "interline arrangements" such as a new code share arrangement with Qatar Airways effective in December.

The carrier said it may have to make additional changes to the network in the coming months as worlwide demand had dropped sharply and was expected to "stay low for some time to come."

It said it expected an overall contraction of passenger loads this year especially on routes to the Middle East, North and South America following the worldwide aviation crisis sparked by the terror strikes in the US.

But it noted it was less exposed than many of its competitors as North America only contributed about eight percent of revenues.

MAS said it was finalising programs to layoff excess staff and may deploy a voluntary separation scheme in addition to reducing the use of contract staff, early retirements and normal attrition.

Prime Minister Mahathir Mohamad said today that MAS was restructuring but there was unlikely to be any major staff retrenchment.

"Whenever there is a problem, we don't begin by sacking people. We must look into how we can manage it without sacking anybody," he told reporters.